China dominates the global solar energy sector but its local industry is facing challenges

The Uncertainties of China’s Solar Energy Sector

The first uncertainties about China’s solar energy sector emerged last May.
The increasingly lower prices of equipment and panels, along with the government’s political support, paradoxically shook the Dragon’s green race internationally.

Beyond the Great Wall, we find a market that is almost saturated and fierce competition.
In 2023, China increased its construction of solar panels by an outstanding +55%, but last March the growth slowed down to +32% annually, the lowest level in the past 16 months.
Moreover, just a couple of months ago, Reuters reported that the expansion of solar energy beyond the Great Wall was slowing down due to stricter restrictions on the excess energy from solar panels on rooftops being fed into the grid, as well as changes in electricity prices negatively affecting new projects.

The construction of solar panels in China has been largely surpassed by the growth of its photovoltaic module production capacity, allowing the country to export more solar panels and triggering a commercial reaction from Europe and the United States.
However, one must pay attention because China’s role in the solar energy sector has two sides.

The Solar Paradox of China

As explained by The New York Times, while China dominates the global solar energy market – a dominance achieved in less than 20 years – the country’s domestic industry is in turmoil.
It’s true that almost every solar panel on the planet is produced by a Chinese company, as well as the equipment for their production is mostly made in China, and it’s also true that the export of these products to the entire world increased by another 10% in May compared to the previous year.

On the other hand, behind the Forbidden City, something crucial is happening.
Wholesale prices of solar panels plunged by almost half last year and dropped another 25% this year.
Local producers are competing to attract customers by cutting prices well below their costs and continue to build more factories.

All of this has had a severe impact on Chinese solar companies.
The stock prices of the five largest producers of panels and other equipment have halved in the last 12 months.
Since the end of June, at least seven major Chinese producers have warned that they will announce heavy losses for the first half of this year.

What’s Happening in the Solar Panel Market

The solar panel market intertwines with the green policies decided by the Chinese government.
The rapid development of solar energy in China has put the country on track to achieve its renewable energy goals years ahead of schedule.
Its installed solar capacity amounts to 655 gigawatts (GW), far surpassing that of any other country in the world, well above the United States, in second place, with over 179 GW by the end of 2023.

S&P Global Commodity Insights predicts that new installations will increase by 4% in 2024 compared to the 217 GW of last year, while Rystad analysts see a 6% increase.
On the contrary, the China Electricity Council forecasts a -20% decrease in new installations.

The rapid growth of solar energy in China, an essential component of the country’s “three new” economic engines, has led to an overproduction issue.
As a result, Beijing has installed so many solar panels that they generate more energy than the country’s storage and transmission infrastructure can handle.
This surplus has prompted authorities to withdraw some price support for the sector, resulting in a reduction in solar panel installations.

Chinese manufacturers, faced with a domestic oversupply, are likely to export their excess solar panels to the international market.
Bloomberg confirmed that Chinese players in the sector are producing more solar panels than they could sell domestically.
This could lead to an influx of cheap, Chinese-made solar panels in global markets, increasing trade tensions with Western countries.